Judge orders Kentucky pension agency to release report about hedge fund deals

A judge has ordered Kentucky’s state pension agency to release a suppressed report about possible fraud in its controversial hedge fund investments, ruling that taxpayers deserve to see a report that cost them $1.2 million.

“The public paid $1.2 million for this report,” Franklin Circuit Judge Phillip Shepherd ruled Thursday. “The public has a right to know its contents and decide if it got what it paid for.”

In 2020, the Kentucky Public Pensions Authority hired New York law firm Calcaterra Pollack to investigate “any improper or illegal activities” in billions of dollars in hedge fund deals that have led to lawsuits alleging fraud. The initial suits were filed by public employees and, later, the attorney general’s office.

The suits claim that several hedge fund dealers cheated the KPPA on $1.5 billion in risky, poorly disclosed, high-fee investments from 2011 to 2017, aided by some KPPA trustees and employees. The dealers deny the claims. The KPPA itself has not joined the fraud suits as an active party.

After initially saying that Calcaterra Pollack’s report would be shared with the public, the KPPA rejected requests by many — including the Lexington Herald-Leader — to release it under the Kentucky Open Records Act.

The KPPA cited a number of exemptions in the open records law, including attorney-client privilege and the work product doctrine, the privacy shield that documents typically enjoy if they are produced by attorneys in preparation for a possible trial.

But Franklin Circuit Judge Phillip Shepherd shot down the pension agency’s defenses. In two separate opinions issued Thursday, Shepherd gave the KPPA 10 days to publicly release the final report.

The KPPA waived attorney-client privilege when it shared the report last year with the Office of the Attorney General, who is not the agency’s attorney in this matter, Shepherd wrote. As for the report being attorney work product meant to prepare for possible litigation, Shepherd said he’s skeptical, since the KPPA has steadfastly refused to join the fraud suits brought by others over the last five years.

Shepherd, who has reviewed the report privately, said much of it consists of a collection of publicly available documents, including KPPA committee transcripts, internal KPPA investment records and newspaper articles — none of it privileged material.

“A compilation of facts cannot be funneled through attorneys in order to confer privilege on otherwise unprivileged records,” Shepherd wrote.

“In short,” he wrote, “a full review of the Calcaterra Pollack report gives rise to questions as to whether the purpose and intent of the report was to fully expose all the relevant facts (and to determine if the KPPA and its employees made mistakes), or if the report was commissioned to cover up or minimize those mistakes in an effort to convince the (attorney general) to not pursue claims that could prove embarrassing to the current or former management of KPPA.”

David Eager, executive director of the KPPA, declined to comment Thursday, saying he cannot discuss pending litigation.

The two plaintiffs who brought the winning open records challenges were Louisville attorneys Glenn Cohen and Jordan White, who represent some of the defendants in the fraud suits.

In an interview Thursday, Cohen said his client — former pension system trustee William Cook — believes that he did nothing wrong, and he wants to see whatever reports the KPPA has produced on the hedge fund deals as he prepares his defense.

In his rulings, Shepherd said he observed what he called “a questionable bid solicitation process” behind the KPPA’s awarding of the investigative contract to Calcaterra Pollack.

Based on his review of KPPA records, he wrote, the law firm submitted two separate but “substantially identical” proposals for the work, the first of them dated June 19, 2020, two months before the KPPA solicited competitive bids for the project. That June 2020 proposal suggested a “high end” fee range of about $1.2 million, which is what the law firm ended up getting paid in its final deal with the pension agency, the judge wrote.

The KPPA is responsible for providing retirement benefits to more than 400,000 state and local government employees and retirees around Kentucky. It’s one of the nation’s worst-funded public pension systems, with $16.7 billion in pension assets listed in its 2021 financial report and $25 billion in unfunded actuarial liability.

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